Purpose Trusts: A Perplexing Ruling

Keith Robinson questions the reasoning behind a recent decision on disclosure in the case of Bermuda purpose trusts.

Purpose trusts have been valid in Bermuda since the coming into force of the Trusts (Special Provisions) Act 1989 (TA 1989), in what was a very significant and deliberate departure from the common-law principle that every trust other than a charitable trust must have a beneficiary who can compel its performance. This legislation was then the subject of substantial amendment in 1998, with the passing of the Trusts (Special Provisions) Amendment Act 1998. Given the seismic change from the common law that this legislation represents, its terms are surprisingly brief.

Following a general statement of legality (s12A(1) TA 1989), the statute provides that three conditions must be fulfilled with respect to the purpose or purposes (s12A(2)), namely that they are:

sufficiently certain to allow the trust to be carried out; lawful; and not contrary to public policy. The statute then provides (s12B(1)) that the Supreme Court may make an order enforcing a purpose trust on the application of:

any persons appointed in the trust for this purpose; the settlor (unless there is a contrary intention); a trustee; or any other person with sufficient interest. The Attorney General is given the position of default applicant if there is no person able and willing to make such an application.

Since the passing of the TA 1989, there has been very little Bermuda case law that has touched upon purpose trusts. The Bermuda courts have, for example, exercised the jurisdiction provided for in s12B(2) to approve a scheme of variation but there have been no reported decisions - until now, that is, with the recent interlocutory decision in the case of Trustees 1-4 v Attorney General and others.1

FACTS OF THE CASE

This was an application in the course of Beddoe proceedings,2 and was reported without the identity of the parties being revealed. The plaintiffs were trustees of four Bermuda purpose trusts and the second respondent had issued a writ against the trustees (in what was referred to as the 'main action'), claiming on behalf of the estate of his deceased father that his father had not properly consented to the assets being placed into trust.

The plaintiff trustees sought directions by originating summons as to: the stance they should adopt in the main action (they invited the court to direct that they should resist the second respondent's claim)...